2023-12-14 22:55:00
Christine Lagarde played down expectations of an imminent rate cut in the euro zone and reiterated that despite falling inflation estimates, borrowing costs will remain at current record levels. We are committed to getting inflation back to 2% in the medium term, the ECB chief said, which is expected to happen in 2025, according to Money ReviewRador Radio Romania quotes.
President of the European Central Bank (ECB), Christine LagardePhoto: Daniel Roland / AFP / Profimedia Images
The ECB left interest rates unchanged but made no hint of a possible rate cut in its statement, stressing instead that inflation might soon return and price pressures remain strong, mainly due to labor costs .
Christine Lagarde’s statements were on the same wavelength as the ECB’s statement, who revealed that she is in the post-Covid recovery phase, which is also visible from the low tone of her voice and from the cough she had. “Should we be less cautious? We asked ourselves that. No – under no circumstances should we lower the level of caution,” she said at the press conference held following the ECB’s decision.
“We haven’t discussed lowering interest rates at all. Not a word, not a word,” she said flatly. While acknowledging that price pressures are easing, Lagarde said domestic inflation, which is largely driven by wage costs in the 20 countries that use the euro, “is not letting up.”
“We need to better understand what’s going on there,” Lagarde said, talking regarding wage dynamics and the extent to which any additional wage increases will be absorbed by companies. Furthermore, despite a slowdown, inflation is expected to pick up once more in December.
At the same time, Lagarde spoke regarding geopolitical risks, mainly due to the conflicts in Ukraine and Gaza, but also regarding the risk of stimulating demand if monetary policy abandons the tightening line. She once more asked the governments to lift the support measures so that the budgetary policy also moves within stricter frameworks.
When asked regarding the Fed’s signal of a rate cut in 2024, she said only that the ECB’s decisions depend on dates and not time frames, and therefore declined to provide a timetable for interest rate developments.
Echoing ECB experts’ forecasts, Lagarde also said headline inflation would average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. Compared to experts’ projections from September, they are revised downwards for 2023 and especially for 2024.
In addition, Lagarde stated that the ECB does not foresee a recession in the euro area, clarifying that she is not talking regarding specific countries. Specifically, in its new forecasts, the ECB forecasts a recovery in economic growth, from a rate of 0.6% on average for 2023 to 0.8% in 2024 and 1.5% for 2025 and 2026.
Finally, she also said that interest rates are not related to the PEPP (Pandemic emergency purchase programme) program, nor to plans to reduce reinvestment by an average of 7.5 billion euros per month in the second half of 2024 , with these reinvestments coming to a complete halt at the end of the year – as planned. “We think it served its purpose,” Lagarde said, explaining that it was an emergency program, especially for the period of the pandemic.
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